3rd Annual AML Summit January 25, 2018 Kathmandu, Nepal

Transcription

1 3rd Annual AML Summit 2018 January 25, 2018 Kathmandu, Nepal

2 Agenda Inaugural Session Sanjib Subba, Chief Executive Officer, National Banking Institute Shirish Pathak, Managing Director, Fintelekt Advisory Services Gyanendra Prasad Dhungana, President, Nepal Bankers Association Ramu Paudel, Director, Financial Information Unit, Nepal Rastra Bank Upendra Paudel, Director, National Banking Institute Top 5 KYC/AML Issues Facing Financial Institutions Rohit Kaul, Risk Specialist South Asia, Thomson Reuters Decoding Red Flag Indicators & Identifying Suspicious Patterns Ravi Lahoti, Principal Officer & Head AML, HDFC Bank India KYX: Identifying Risks in Banking Relationships Piyush Chawla, Head of Sales - South Asia, Accuity Artificial Intelligence and Machine Learning in AML Prashant Muddu, MD & CEO, Jocata Financial Advisory & Technology Special Address Hari Kumar Nepal, Director, Ministry of Finance Panel Discussion: Emerging AML Risks and Vulnerabilities Moderator: Sanjib Subba, Chief Executive Officer, National Banking Institute Panelists: Ramu Paudel, Director, Financial Intelligence Unit, Nepal Rastra Bank Parshuram K. Chhetri, CEO, Janata Bank Nepal DIGP Pushkar Karki, Director, Central Investigation Bureau Narayan Prasad Paudel, Executive Director, Nepal Rastra Bank Jeevan Prakash Sitaula, Director General, Department of Money Laundering Investigation Ravi Lahoti, Principal Officer & Head AML, HDFC Bank India

3 Participation 33% DESIGNATIONS 4% 10% Compliance Head CxO AML Officer AML Manager Head - Internal Audit/Risk 35% 18% ORGANISATIONS Bank of Kathmandu Muktinath Bikas Bank Bit Solution Nepal Nabil Bank Century Commercial Bank National Banking Institute Citi Express NCC Bank Citizens Bank International Nepal Bangladesh Bank Civil Bank Nepal Bank Everest Bank Financial Intelligence Unit - Nepal Global IME Bank Nepal Investment bank Green Development Bank NepaL SBI Bank Gurkhas Finance NIC Asia Bank Hamro Bikas Bank NMB Bank Himalayan Bank Prabhu Bank Janata Bank Nepal Prime Commercial Bank Jyoti Bikas Bank Purnima Bikas Bank Kamana Sew Bikas Bank Rastriya Banijya Bank Kumari Bank Remit to Nepal Laxmi Bank Samasara Remit Lumbini Bikas Bank Sanima Bank Machhapuchchhre Bank Siddhartha Bank Mega Bank Standard Chartered Bank Ministry of Finance Sunrise Bank

4 Welcome Address Sanjib Subba Chief Executive Officer, National Banking Institute AML is not only specific to compliance heads. It is everyone s responsibility: from tellers to board of directors. Thus, awareness around the issue must be spread at all levels. Banks need to be more open about investing in AML software. The landscape is changing rapidly and their willingness to invest in technology will take them forward. Banking in Nepal is lagging behind as far as technology is concerned. Banks should look at it as an opportunity to invest in newer technologies.

5 Inaugural Session Shirish Pathak Managing Director, Fintelekt Advisory Services The role of AML compliance officers has seen a shift in the last few years. Risk has increased in their roles as they are personally liable in case of any lapse in adhering to regulation. The bare necessities each bank must have include a transaction monitoring system, a screening system, awareness amongst board of directors and employees, regular training, budgets for technology Employees of banks have to keep themselves updated about money laundering threats around the globe, such as dual used goods, Trade Based Money Laundering (TBML), Artificial Intelligence, Virtual Currencies, payment systems, mobile wallets. Rather than being a cost centre to the bank, employees need to be advisors to the bank. A country as a unit needs to come together, form a compliance association to fight money laundering in the country. AML steps should be taken in the right spirit, and not as something banks need to do because of the regulator.

6 Inaugural Session Gyanendra Prasad Dhungana President, Nepal Bankers Association Banks in Nepal are not generating sufficient Suspicious Transaction Reports (STRs). A few banks are still doing it manually, while some of the banks have invested in software that aren t efficient enough. Banks need to centralize their operations. It becomes extremely difficult to track high risk customers if systems are not centralized. Updating customer profiles (KYC) has to be a regular practice. Identification of PEPs is another challenge that banks are facing. Banks are preparing their own lists of PEPs based on their data, but the list keeps growing. The process of identification of beneficial ownership needs to start right from customer onboarding. Banks need to digitize all KYC documents for ease of access.

7 Inaugural Session Ramu Paudel Director, Financial Information Unit, Nepal Rastra Bank Financial crime continues to evolve in modus operandi, multiply in scale and complexity. It can inflict serious harm to the smooth functioning of financial sector. Money laundering and terrorist financing are cross-border issues and cannot be overcome without co-operation between different stakeholders across borders. AML/CFT regime not just requires legal/institutional infrastructures, but also well-functioning organizational set ups for effective implementation. Regulators, supervisors and bankers need to be dynamic and need to keep updating themselves. FIU Nepal is in the process of implementing AML software and is hoping that reporting entities will soon start sharing information electronically with them. One of the biggest challenges faced by financial institutions is capacity building because the field is very dynamic and technologically advanced.

8 Inaugural Session Upendra Paudel Director, National Banking Institute Banks need to inculcate a culture of compliance in their day to day activities. Unless bankers consider compliance as part of their culture, achieving robust AML systems will be very difficult. There is a need to increase awareness within the entire banking system, which can be achieved by bringing all stakeholders together. The government must introduce a comprehensive identity for citizens of Nepal. There is a knowledge gap in anti-money laundering fundamentals that needs to be addressed through training programs.

9 Top 5 KYC/AML Issues Facing Financial Institutions Rohit Kaul Risk Specialist South Asia, Thomson Reuters Financial Information Unit has identified corruption, tax evasion and terrorist financing as three major issues in Nepal. Among the top challenges, KYC resource remains the most important one for financial institutions Time taken to onboard new clients is rising FIs have not yet implemented all the requirements for ongoing KYC Checks Regulatory changes are still the biggest drivers for FIs to change their KYC processes Rising cost of compliance Financial institutions need a software that can monitor, identity the status on a daily basis, automatically rescreen clients & related parties, integrate seamlessly with existing internal systems, identify the ultimate beneficial owners, provide a secure portal and publish clients records with risk rankings based on a rigorous process of verification, screening & validation.

10 Decoding Red Flag Indicators & Identifying Suspicious Patterns Ravi Lahoti Principal Officer & Head AML, HDFC Bank India Red flag indicators need to be multi-dimensional, and redefined regulatory based on emerging trends. There has to be some perspective added to them so that the system doesn t end up generating regular false positives. An important rule for red flag indicators is to implement a written program that can prevent, and not just detect and mitigate money laundering risks. Red flag indicators are divided into five categories: Cash: A transaction of an unusual amount or multiple transactions with small amounts but at high frequency Economically Irrational Transactions: Transactions not in line with purpose, business or previous pattern Fund Transfers: Remittances from high risk countries / regions Customer Behaviour: Customer behaves unusually or unreasonably Miscellaneous: Customer is evasive or being investigated; money is earned from offences or always below threshold

11 KYX: Identifying Risks in Banking Relationships Piyush Chawla Head of Sales, South Asia, Accuity There is still a heavy reliance on manual processes among banks in Nepal. There is a need for systems, that can keep up with the pace of the ever changing regulatory environment. Without automation, the current compliance resources are overburdened due to expanding regulatory requirements. Leveraging technology is the only option to find a balance between rising compliance costs and margins. Banks need to have enhanced databases of individuals connected directly or indirectly such as PEPs. Compliance Is expensive, but non-compliance can cost even more. It extends beyond just a monetary value. De-risking is something that has a significant economic impact to a country. While the total number of banks globally have increased, the number of correspondent banking relations have gone down.

12 Artificial Intelligence and Machine Learning in AML Prashant Muddu Managing Director and CEO, Jocata Financial Advisory & Technology In a landscape where our customer requirements are shifting from face-to-face banking to digital banking, it is necessary to improve digital aspects of the banking business. Artificial Intelligence is when we program devices to mimic our cognitive behavior. Machine Learning can be of three types: Supervised, Unsupervised and Reinforced. There is a lot of organizational intent to drive digitization and help evangelize the importance of the shift in culture. When algorithms are applied over a substantial set of data, it can result in fewer alerts, tighter classification of customer risk base and reduction in false positives.

13 Special Address Hari Kumar Nepal Director, Ministry of Finance Employees of financial institutions are the foundation of the AML/CFT system in any country. The safety of national and international financial systems is dependent on the front end staff of financial institutions. AML is an integral part of good governance. If there is transparency in an economy, there will never be any fraud. Technical compliance of a country can be assessed by the following parameters: i) If a country s legal and institutional regimes are compatible with international regimes; ii) If a country is implementing a system to ensure that there is a positive outcome.

14 Panel Discussion: Emerging AML Risks and Vulnerabilities From L to R: Ravi Lahoti, HDFC Bank; Ramu Paudel, Financial Intelligence Unit, Nepal Rastra Bank; Parshuram K. Chhetri, Janata Bank Nepal; DIGP Pushkar Karki, Central Investigation Bureau; Narayan Prasad Paudel, Nepal Rastra Bank; Jeevan Prakash Sitaula, Department of Money Laundering Investigation; Sanjib Subba, National Banking Institute The culture of compliance has to be set from the top. In terms of compliance, there should be a zero tolerance policy. Training of employees should be mandatory and linked to performance appraisals. The seriousness of AML Training should be communicated to all employees. The way forward for Nepal should be to make a project plan for all FATF recommendations and set a target date for implementation of each of the recommendations. Policies and processes should be aligned with the project plan, target dates should be met and the same should be communicated to the FIU. Business and compliance should work together. If and when a query is raised against a customer from the compliance department, the business department should not tip off the customer, but help compliance gather as much information as possible. It is not the responsibility of a regulator to micro manage things for banks. The regulator issues broad guidelines, but implementation is the responsibility of reporting entities. There should ideally be no budget for compliance. Banks should invest in technologies that meet their needs and reduce manual intervention.

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